Guest Article: Cost per Lead is dead; long live performance advertising!

The full value of online advertising can be unlocked by moving to systems of measurement, which actually represent the value of the ad to marketers, instead of relying on metrics like cost per lead, which can be misleading, says Vivek Bhargava of Communicate2.

e4m by Vivek Bhargava
Updated: Mar 31, 2011 8:52 AM
Guest Article:  Cost per Lead is dead; long live performance advertising!

Our sales team came to me yesterday and told me of a lost client who refused to work with us if we didn’t offer them a cost per lead model. I smiled to myself and told the sales team a well known quote, “if you love someone, set them free; in all eventuality they will surely come back to you.”

We’ve seen the trend as well as the evolution of clients like ICICI Lombard who stopped working on a cost per lead basis as long as three years ago. The others are not far behind the enlightenment process that is occurring over the last few years.

As an online marketer I have felt like Kalidasa in the last few years. Positioning online advertising as a lead generation medium by digital marketers has been as good as sitting on the very branch you’re cutting.

Thankfully unlike other digital advertising companies this is not a mistake we choose to live with! At Communicate2, we can confidently boast of not having a single CPL customer. This feat was achieved without losing a single client as well as retaining our performance marketing positioning. It was just a matter of demonstrating that performance marketing did not equate to lead generation on a cost per lead basis and working on a CPL is, very often, detrimental to the client’s interest.

Let me elaborate on the rationale behind this. An explanation of how Communicate 2 was able to achieve this will, hopefully, help other agencies to move away from this model and also push their respective clients towards realising the true potential of digital.

I think it is important to first divide the Internet into a direct acquisition platform and an advertising medium. While each may compliment the other, they’re completely unique in identity and can deliver value without any co-relation to each other.

CPL not relevant for acquisition
I remember my meeting with a client three years ago when they had said:

“We currently get leads at Rs 120, what lead price do you have to offer?”

My reply went something like this:
“What business are you in? Are you in the business of receiving fixed deposits or that of generating leads?”

I still remember his face, looking at me as if I’d committed blasphemy! When he asked me to explain myself, I went ahead to ask him what he would prefer more -¬ 5000 leads generating 50 crores of deposits or a 1000 leads generating the same amount of deposits? If the answer is of generating more deposits, then why measure the cost per lead?

Measuring cost per lead without measuring the end result is like measuring footfalls rather than actual sales. My final commitment to the client was to not measure our lead price, just measure the business we generate, at the same budget. Internally, we decided to take a different approach - instead of only bidding for keywords such as fixed Deposit, we also bid for keywords such as Berkshire Hathway (a surrogate for an HNI in India). As luck would have it, our campaign resulted into a single fixed deposit of Rs 5.2 crores which was immediately followed by 2 deposits of Rs 70 lakhs and 90 Lakhs each. What was the lead price, you ask? Triple that which the client was paying earlier. However, the business generated was six times as much, owing to an increase in average size of fixed deposit as well as the lead-to-conversion ratio.

Similarly, we now know that a keyword such a ‘nova chairs’ (Dental Chairs) generates a personal loan of 10 lakhs vis-a-vis a personal loan of Rs 50k for ‘buy laptop’ as a keyword. Thus a Rs 500 lead price from a Nova Chair keyword has much more value than a Rs 50 lead generated from a laptop related keyword. I rest my case.

(Vivek Bhargava is the CEO of leading search marketing firm Communicate2.)


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